Health Insurance Safety Net Designed to Exclude

The COBRA and HIPAA regulations were trumpeted as a health insurance safety net for workers between jobs. COBRA allows a former employee to continue their former employer’s group coverage for a maximum of 18 months (36 months under special circumstances). The former employer must have over 20 employees and an established group plan that the employee participated in. The kicker is that the former employee must pay the full cost plus a 2% administrative fee. COBRA does give qualified former employees guaranteed issue, but at a cost much higher than the individual and small group plans in many states.

HIPAA kicks in after COBRA runs out or when the former employee is not eligible for COBRA. HIPAA offers guaranteed issue to individual health insurance plans. The available plans vary by state. Some states open all individual plans, while others limit the plans available for HIPAA guaranteed issues. Often the plans open to HIPAA are the most expensive in each state.

HIPAA disqualifies anyone COBRA eligible, even if a HIPAA plan would be substantially cheaper. Additionally, the former employee must have had 18 months of continuous coverage with the last day in a group plan. But the former employee cannot currently be covered when applying, unless they anticipated the end of group coverage. Application must be made within 63 days of losing coverage.

My favorite is the Florida “safety net” for breast cancer patients. Insurers cannot reject a woman solely based on having breast cancer, but can reject a breast cancer patient for any other reason. At the extreme, a breast cancer patient can be rejected for a hang nail. Florida recently enacted a “reform” program for the uninsured. It offers guaranteed issue in the individual market, but an applicant must have been uninsured for six months to qualify.

Why not just enact guaranteed issue and eliminate all this complexity? The answer is the politicians want to placate their constituents, while not infringing on the private health insurers. Exclude as many of insurance companies’ undesirables as possible. So far the private insurers have been able create the illusion of a safety net. If Senator McCain’s plan to move more employees into the individual market takes hold, the safety net will really be tested.

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